The Reserve Bank of India (RBI) on Monday announced another “Operation Twist’’ or the simultaneous purchase and sale of government bonds worth Rs 10,000 crore each as it looks to tamp down on the benchmark 10-year paper to feed the Centre’s ravenous appetite for funds.

“On a review of current liquidity and financial conditions, the Reserve Bank has decided to conduct simultaneous purchase and sale of Government Securities under Open Market Operations (OMO) for an aggregate amount of Rs 10,000 crore each on February 25, 2021,’’ the apex bank said .

The RBI will purchase securities maturing in 2025, 2029 and 2033 — 5.22 per cent Government Security 2025, 6.45 per cent GS 2029 and 6.57 per cent GS 2021 — and sell bonds — 8.79 per cent GS 2021 and 8.20 per cent GS 2022 — maturing in November this year and February 2022.

The government will borrow Rs 88,000 crore in the next 45 days and a collosal Rs 12 lakh crore in the next fiscal to help pump-prime an economy felled by the lockdown.

Bond yields have climbed after finance minister Nirmala Sitharaman announced the government’s massive expenditure plans in the budget.

The RBI also did not come up with a calender for open market operations (OMOs) in its monetary policy announced last week, which disappointed the markets.

Moreover, the RBI would also restore the cash reserve ratio to 4 per cent in two phases reducing it to 3 per cent during the lockdown to inject liquidity in the system. All these saw yields on the 10-year benchmark bond hitting 6.15 per cent.

Since then the RBI has taken steps to soften yields. Market circles said it wanted to keep the benchmark bond below 6 per cent so that the government’s borrowing programme proceeds seamlessly. On Monday, the 10-year bond closed at 6.02 per cent.

It conducted OMO last Wednesday where it left out a bond maturing in 2028 and bought bonds of Rs 2,040 crore (GS 2024) and Rs 3,306 crore (GS 2034). Subsequently, in a special auction, it set a cut-off yield of 5.97 per cent for a 10-year bond. These resulted in yields on the benchmark 10 year bond falling to below 6 per cent. On Monday, it closed at 6.02 per cent.

"The RBI is likely to continue with normalising liquidity conditions in line with underlying growth and inflation fundamentals. However, they will make the process as non-disruptive as possible by continuing to keep liquidity in surplus. Yield management by the RBI is likely to continue, however the central bank is likely to be more comfortable with a higher band for yields than 2020, HDFC Bank chief economist Abheek Barua had said in a note following the monetary policy.